Economic recovery

Weekly wrap

10:00  June 20, 2020

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Economic recovery

foto:Yandex

Period: 13 – 19 June 2020

Main topic: First economic recovery data from some countries after COVID situation started coming in. It shows that recovery pace is lower that official forecasts. For the US it is explainable («Black Lives Matter» movement) but for China it is unexpected news.

Macroeconomy

Chinese indicators in May continued to recover but at lower than expected pace: industrial production grew 4,4% vs expected 5,0%. Retail sales dropped 2,8% vs expectations of -2,0%.

Improvement in investment is also below what was desired:

1_34

Housing prices in major Chinese cities is at minimum for the last 2 years and close to 4% lows:

2_41

US industrial production grew 1,4% in May (2 times below expectations) with huge -15,3% Y-o-Y drop. Processing industries production dropped 16,5% Y-o-Y.

3_30

Capacity utilization remains without significant changes compared to April:

4_23

Companies’ inventory for sales in US M-o-M drop was steepest since 2009.

New housing construction in US slightly improved in May vs disastrous drop in April – this indicator now remains at levels of 2015.

US retail sales acutely improved in May but Y-o-Y drop still remains:

5_19

Russia’s industrial production Y-o-Y decline is 9,6% - minimum since August, 2009.

Canada’s processing industries sales in April fell 28,5% vs May – absolute record in over 39 years of observations.

Italy’s industrial sales M-o-M drop was 29,4%, Y-o-Y drop was 46,9%. Both are minimum records. Situation with industrial orders is even worse: -32,2% M-o-M and -49,0% Y-o-Y.

EU’s construction output M-o-M drop was 28,4%. This is max fall in 24 years of observations.

Brazil’s retail sales dropped 16,8% Y-o-Y, Canada’s drop was 32,5%. UK’s M-o-M recovery was very powerful but Y-o-Y number remains at -13,1%.

Japan’s services index activity is lowest in 25 years. Overall economy activity index continued it’s decline and remains at levels of June 2009:

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Exports and imports of Japan in May are lowest since 2009.

Number of unemployed in UK is growing with salaries growth at minimum since 2006.

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Australia’s unemployment levels are at 19 years record, with number of unemployed at 26 years record:

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US number of people who are receiving unemployment benefits doesn’t drop below 20 million:

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Italy’s Y-o-Y CPI drop was 0,2% - minimum since October, 2016. Germany hit lows of September, 2016 with PPI lowest since May, 2016. EU’s CPI is at minimum since September, 2016. Canada’s CPI is weakest since June,2016. UK’s CPI weakest since June, 2016; PPI is at minimum since 2015 and very close to absolute lows.

10_7

Japan hit 2016 lows for CPI and CPI without food and fuel.

Wholesale prices deflation in India is strongest since November, 2015. Russia’s PPI is at record lows:

11_8

Bank of Japan broadened by 300 billion US dollars its direct monetary stimulus for companies.

Bank of England increased its stimulus by 100 billion pounds.

Brazil’s Central Bank slashed its interest rate by 0,75% to 2,25% (absolute minimum).

Indonesia’s Central Bank cut was 0,25% to 4,25% (record minimum).

Russia’s Central Bank cut was 1,0% to 4,5% (record minimum).

Foreign investors were actively buying short-term US treasuries and were selling long-term:

12_6

United States Net Treasury International Capital Flows

UK’s budget deficit hit record in April and May:
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Conclusions: Acute short-term COVID economic drop was replaced by recovery. Official forecasts of monetary authorities around the world lead us to the idea that until Autumn economies will recover. However, the current pace of recovery at this stage lags behind such optimistic forecasts.

We, at Mikhail Khazin’s Economic Research Fund, believe that real underlying cause of economic crisis lies in structural fundamental misbalances in major economies. COVID situation was just a trigger. It leads us to believe that we will not see full recovery in Autumn, neither in Spring, 2021. Structural global economic crisis started and pace of decline will be much lower than in acute phase of COVID in March-May, but decline itself will last much longer. In other words, recovery will not last long, pre-COVID economic levels won’t be reached and recovery will be followed by decline.


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